Sharp Jump in Corporate Debt Restructuring (CDR )

Source : The Telegraph :Monday , December 5 , 2011

Mumbai, Dec. 4: Industry is witnessing a sharp jump in instances of companies moving the corporate debt restructuring (CDR) cell — a loan recast forum of banks. Analysts consider this as a sign of moderating growth and an outcome of rising interest rates. In the first half of this fiscal, there has been an increase both in the number of cases as well as in the value of the loans being referred for recast. Bankers feel the trend is unlikely to change in the next six months as companies continue to face difficulties because of the macro-economic environment and the uncertainty in developed nations. According to Sandeep Jain, banking analyst at IDBI Capital, the number of cases that have been referred for debt restructuring rose to 35 in the first half of 2011-12 compared with 22 in the corresponding period last year. In value terms, the amount of loan being referred has also shot up to Rs 34,560 crore in the first half — the highest in the last eight years — compared with Rs 5,180 crore last year. However, this figure includes the GTL group’s total debt of Rs 22,620 crore. “Excluding the debt of the GTL group, the total figure still stands at Rs 11,940 crore, which is twice last year. The increasing trend of CDR cases is worrisome and total restructuring can increase multi-fold in the current environment,’’ Jain said in a report. CDR is a mechanism for restructuring debts of viable corporates who have been affected by internal or external factors; the cases are outside the purview of the Board for Industrial and Financial Reconstruction (BIFR), Debt Recovery Tribunal (DRT) and other legal proceedings. There are certain conditions on the cases that can be recast under CDR. For instance, the mechanism covers only multiple banking accounts/syndication/consorti-um accounts with banks and financial institutions having an outstanding exposure of at least Rs 10 crore. Moreover, if 75 per cent of the creditors by value agree to a restructuring package of an existing debt, this will be binding on the remaining creditors. Once a case is referred to CDR, there is a “standstill” agreement binding for 90/180 days. During this period, both the borrower and the lender commit themselves not to taking recourse to any other legal action so that the debt restructuring exercise can be undertaken without any intervention. Analysts say there has also been a jump in non-CDR recast cases. It is estimated that during the first half of this year, banks restructured around four per cent of their advances. PSU banks had to deal with higher restructuring proposal than their private peers. For instance, the State Bank of India restructured loans of over Rs 500 crore during the quarter, taking the cumulative restructured book to Rs 35,400 crore.